Dunne: Expect Chinese companies to keep investing in U.S.

Chinese automotive companies have invested heavily in the United States over the past few years but have drawn little attention from the general public.

Michael Dunne, CEO of ZoZo Go, an investment advisory firm that focuses on Chinese autonomous and electrified vehicle companies, says more than 120 Chinese auto companies are operating in the U.S. And he expects to see hundreds more Chinese suppliers enter North America in the next seven years. That is a dramatic development from an industry that is still comparatively young by global standards.

On Nov. 5, Automotive News will publish a special report exploring Chinese investment in the U.S. auto industry. Dunne spoke with Correspondent Stephanie Hernandez McGavin about the investment activity.

Q: How does the investment strategy of Chinese companies today differ from that of the Japanese transplants in the 1980s?

A:There's a big distinction to be made. At a certain point, Japan and then Korea realized that their home markets, while solid, were not that big. In order to grow, they had to go overseas. But that's not true in China's case.

For the past 20 years, Chinese automotive companies were happy to stay at home. Their market exploded from 1 million new vehicles in 2000 to close to 30 million this year. They've been happy to just ride that wave at home in what became the world's largest automotive market. So there wasn't any urgency to move outside.

In that case, what's motivating Chinese companies to come to North America?

The Chinese feel as though they're ready to go global. And what does that mean, "ready"?

First, their home market is maturing. The double-digit growth rates are fading away, so they're looking for new markets outside of China. The second thing is that, after so many years working with global automakers inside China and supplying them — and I'm talking about both suppliers and automakers — they feel they're getting closer in terms of being able to compete globally.

So it's a slowing market at home, plus a heightened confidence in their own capabilities.

Japanese companies often came here with innovative technologies or factory processes. What are Chinese companies bringing to the table?

The biggest distinction isn't that Chinese companies are bringing new thinking or innovation, per se. But they have the capital and wherewithal to acquire technology and then put it into practice. The Japanese and Koreans brought their own suppliers and they grew organically in the U.S. It was methodical. It was from within. The Chinese are comfortable acquiring and running with it.

Our count of investments of Chinese companies investing or operating in United States' auto companies, auto-related suppliers or auto tech is now over 120. That's all happened in the past five years. I think it's safe to say that by 2025, we can expect hundreds of Chinese suppliers, first, second and third-tier companies and automakers on the ground and operating in North America.

How did many people not see this wave coming?

The Chinese have come in very quietly. The Japanese came in with cars first, by exporting, as did the Koreans. Then they set up transplants and started to assemble those cars here. And then the third phase, they brought the suppliers to feed those assembly plants.

With the Chinese, it's almost the inverse. They have supporting industries and tech companies and second- and first-tier suppliers in place. Only now do we start to see hints that the automakers themselves will enter the market.

But Chinese direct investment in the U.S. seems to have slowed greatly in 2018. What's going on?

The current trade climate and political climate has put a real damper on Chinese ability to do transactions in the United States. There's no question about that. The Trump administration has looked very closely at acquisitions of U.S. high-technology companies by Chinese firms. And it's much more difficult to do a deal today than it was just two years ago. It isn't for lack of Chinese enthusiasm. It's the United States saying we will be much more careful about what kinds of acquisition we allow. What we don't know is how long this mini-freeze will last. Are we talking months or years?

How is this freeze affecting Chinese companies' plans?

They'll find the path of least resistance and they'll keep coming, but they may go to Europe first, and they may go to Korea or Japan. They're not changing their minds. No question that the ambition to go global is still there and runs very strong with the Chinese. That won't change.